The Indian Partnership Act, 1932 is the main law in India that governs partnership firms. It lays down the rules relating to the formation of a partnership, the rights and duties of partners, and the dissolution of a partnership firm. The Act was enacted and came into force in the year 1932 and continues to apply to all partnership firms in India.
Definition of Partnership (Section 4)
Section 4 of the Act defines partnership as:
“A relationship between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.”
This means:
- There must be an agreement between the partners
- The partners must share profits
- The business must be carried on by all partners or by any one partner acting on behalf of all
- This creates a relationship of mutual agency, which is the most important feature of a partnership
Maximum Number of Partners
Under Section 464 of the Companies Act, 2013, the Central Government has the power to set the maximum number of partners in a partnership firm.
As per Rule 10 of the Companies (Miscellaneous) Rules, 2014, the maximum number of partners allowed in a partnership firm is 50.
This means:
- A partnership firm cannot have more than 50 partners
- If the number exceeds 50, it must be registered as a company
Dissolution of Partnership Firm (Section 44(d))
Section 44(d) of the Partnership Act provides that:
- A partner can file a suit in court to dissolve the firm if the managing partner conducts the business in a way that is prejudicial, dishonest, or harmful to the firm.
This gives partners a legal remedy against mismanagement.
General Duties of Partners
Partners must follow certain basic duties to ensure smooth functioning of the firm:
1. Duty to Act for the Common Advantage
Partners must run the business:
- For the benefit of the whole firm
- Honestly and faithfully
- Without harming the interest of any partner
2. Duty to Be True and Honest to Each Other
Each partner must:
- Maintain trust
- Share accurate and complete information
- Avoid hiding any facts related to business
3. Duty to Provide Full Information
Every partner must provide:
- Full details
- Accurate records
- Any related information about the business
to any other partner or their legal representatives (if a partner dies).
Duty of Indemnification
Each partner must indemnify (compensate) the firm for losses caused due to:
- Fraud
- Dishonesty
- Misconduct
If a partner’s fraudulent act during business results in loss, that partner must repay the firm.